Family Security Law Group, APC write about estate planning, wills, trusts, durable power of attorney, title and property agreements, special trusts, probate, trust administration and more!

October 2015

10/30/2015

A new decision by the Supreme Court of California has interesting implications for when a will can be reformed by the court.

Irving Duke created a "holographic" (i.e., hand written) will under which his wife was to receive all of his property. However, the will dictated that if Duke and his wife died at the same time, then his property was to be divided amongst various charities.

What Duke did not contemplate in his will is the possibility that his spouse would pass away before he did, which is exactly what happened.

As Duke had never redrafted his will after his wife passed away, the trial and appellate courts declared that his property should go to his relatives under the laws of intestacy. However, the California Supreme Court ruled that an unambiguous will can be reformed by the court if it can be established by clear and convincing evidence that a mistake was made in expressing the testator's intent at the time the will was drafted.

This means that if the charities can establish that Duke clearly meant for his property to go to them in the event his wife was not able to inherit it, then the court can effectively rewrite the will to make that clear and the charities would inherit Duke's property.

It is difficult to determine what a deceased person intended to do.

While it might seem clear that Duke intended his property to either go to his wife or to the charities, it could also be the case that he intended to rewrite his will if his wife did pass away before him.

Consequently, this is the reason courts have generally been unwilling to rewrite potentially mistaken wills. It now appears probate courts in California will need to determine what a deceased person intended when the will is silent on an issue.

If you have had changes in your life or in the lives of your loved ones, then do not delay that phone call to a qualified estate planning attorney to review and update your estate plan.

10/29/2015

Estate laws change regularly, which means that estate planning methods that were once a great idea are no longer advisable for many people. One example of that has to do with the estate tax, capital gains taxes and trusts.

Irrevocable bypass trusts used to be one of the best estate planning devices for many married couples. In these trusts, one spouse funds the trust with an amount just below the estate tax exemption. When that spouse passes away, the trust is then used for the benefit of the heirs, with the rest of the estate passing to the surviving spouse.

Consequently, this approach lowered the size of the surviving spouse's eventual estate and lessened the estate tax burden for the married couple. However, as Kiplinger's Retirement Report points out in "Old Trusts Create Tax Issues for Heirs," estate tax laws have changed significantly since the time when many of these trusts were created.

The estate tax exemption is far higher than it used to be, and spousal portability now allows a married couple to double its estate tax exemption.

The problem for irrevocable bypass trusts is that assets in them do not receive the step up basis for purposes of the capital gains tax. What this means is that for many families, efforts to get around the old estate tax laws are actually creating a greater tax burden now and they would be better off without the bypass trusts entirely.

This is just one example of why it is important to review your estate plan with an attorney every few years. You want to make sure your estate plan is always ideal given the current estate laws, not older out of date laws that may not be relevant to your unique circumstances.

All that noted, every family situation is different. For example, in blended family situations, the irrevocable bypass trust may be the appropriate solution to avoid disinheriting your own children!

Make no estate plans or changes to your current estate planning without the prudent guidance of a qualified estate planning attorney.

10/28/2015

When two people own property in common, they often title it in joint tenancy. This is especially true for married couples. However, there might be alternative ways to title the property that could be better for estate planning purposes.

Holding property as joint tenants with right of survivorship is very common. When two people hold title to property that way, if one of them passes away, then the property automatically becomes the sole property of the other joint tenant.

This has benefits for estate planning, as the property does not have to go through probate. However, there are potential drawbacks. If one of the owners is in debt, his or her creditors may be able to go after the property held jointly. If a parent holds property as a joint tenant with a child, it might make it so other children do not receive a fair inheritance.

Convenience Accounts – Sometimes an elderly parent will want a child to be able to pay the parent's bills. The temptation might be to add the child to a bank account as a co-owner. This is often a mistake. In some states convenience accounts allow the parent to remain as the sole owner of the account while adding the child as a person who can withdraw funds from the account and write checks.

Tenants in Common – Property can also be held as tenants in common. Unlike joint tenancy, each owner's share of the property is kept separate and does not automatically pass to the other owner upon death.

If you have questions about these or other alternatives to joint tenancy, consult with an estate planning attorney.

10/27/2015

A Tennessee court's decision to transfer a lawsuit filed against the Salinger Literary Trust to New Hampshire could be a major victory for the heirs of J.D. Salinger.

Earlier this year, the Devault-Graves Agency, a publisher, filed a lawsuit against the Salinger Literary Trust in Tennessee, claiming that the trust was interfering with the publisher's ability to license its edition of J.D. Salinger: Three Early Stories for publication in foreign countries. The court in Tennessee has determined that it lacks jurisdiction to hear the case and has ordered that it be transferred to the late author's home state of New Hampshire.

The details of this lawsuit are complex. The stories in the book are part of the public domain in the United States, which means they do not have copyright protection and anyone can publish them.

The publishing agency contends that, according to an international treaty called the "Berne Convention," if a work does not have copyright protection in its country of origin, it does not have protection in other countries. Thus, under this theory, the Salinger Literary Trust has no right to try to block the book's publication outside the United States.

On the other hand, the trust claims that the Berne Convention is more complicated and the copyright laws of foreign countries must be taken into account when determining if a work has protection in those countries. A recent decision by a German court lends credence to this position.

The publisher's lawsuit is expected to have a difficult battle in New Hampshire courts.

Other estates that hold copyrights will want to watch this case closely to determine whether or not they have the right to protect works in foreign countries even after those works fall into the public domain in the United States.

Contact a qualified estate planning attorney if you own any intellectual property rights.

10/26/2015

The Internal Revenue Service has announced that 2016 will bring an increase to the estate and lifetime gift tax exemptions.

The exemption limits for the federal estate tax and the lifetime gift tax are tied to inflation. That means every year the IRS has to decide what the exemptions will be for the following year.

For 2015, the exemptions were set at $5.43 million for a single person and $10.86 million for a married couple. The exemptions for 2016 have been raised to $5.45 million for a single person and $10.9 million for a married couple.

It is important to note that the gift tax exemption is the total amount of gifts that may be made during a person's lifetime. The amount that may be given to any individual in a single year in 2016 will remain the same as it is in 2015 at $14,000.

To take advantage of these exemptions you will want to speak with qualified attorneys and accountants to make sure all paperwork is filed properly.

For example, the higher exemption only applies to married people if a surviving spouse files correctly when his or her spouse passes away. There are also certain gifts that do not count against the limits if properly made, including gifts for medical and educational expenses if made directly to the provider.

Thus if your spouse passes away or before giving someone a gift, consult with an expert so the estate can transfer and the gift can be made with as little applicable tax as possible.

10/23/2015

If you do not have any children, you might not think that you need to bother with having an estate plan. However, having an estate plan is often even more important for people without children than for people with children.

A common myth exists that the purpose of estate planning is to provide a way for a person's children to receive their inheritances. From this it follows that people who do not have children do not need to have an estate plan. Nothing could be further from the truth. Providing an inheritance for children is only one purpose of an estate plan, not the sole purpose or even the most important purpose.

As U.S. News & World Report points out in, "No Kids? You Still Need an Estate Plan," people without children need, at the very least, to have a will if they want to have a say in who gets their assets after they pass away.

People who pass away without a will are said to have died intestate. Every state has a law that determines who gets the assets of people who die intestate. The laws all operate similarly, in that the assets are given to the person's closest living relatives.

Under such law, those who have a spouse or children will have their assets given to that spouse or the children. If however you have no spouse or children, then your assets will be distributed to other relatives, depending on who is closest in line. Ultimately, if you have no living relatives that can be found, then the assets will be claimed by the government. The term for this is escheat.

So, the primary purpose of estate planning for most people is avoiding the laws of intestacy and deciding for yourself who will inherit from you.

Do not let the fact that you do not have children deter you from getting an estate plan. Contact a qualified estate planning attorney to help you design a custom plan for your unique circumstances.

10/22/2015

One of the biggest headaches for executors of large estates is coming up with the cash to pay the estate tax. If the cash or other liquid assets are not a part of the estate, then other things might have to be sold that the testator would have preferred to have gone to his or her heirs. There is a way to avoid this problem.

Estate law lore is full of stories about things that had to be sold to pay the estate tax. Businesses, art collections, real estate, wine collections and much more have been sold so that money could be made available to pay the estate tax. However, there is a relatively simple way to provide your estate with enough cash to pay the estate tax: life insurance.

You can create an irrevocable trust and make it the beneficiary of a life insurance policy.

When the insurance is paid out, the executor of the estate can use the money to pay any estate taxes owed. It is important that the trust be irrevocable in order for the life insurance proceeds to not be included in the estate and also subject to the estate tax.

For this to work the trust must be created at least three years before you pass away. If not, then it will be considered as part of your estate.

Of course, life insurance is not the only way to provide liquid assets that can be used to pay estate taxes. Before rushing to create an irrevocable trust and buying a life insurance policy, talk to an estate planning attorney about your other options.

10/21/2015

Sometimes it might be beneficial for a trust beneficiary to not know the details of a trust or even know that the trust exists. Some states do make that possible.

A major concern for wealthy people is that their heirs will not establish their own professional lives or even go to school. Instead, the heirs might rely on their inheritances and not be motivated to establish themselves.

One way to help avoid this is to create a trust that does not give anything to the beneficiaries until they reach an age where they will have settled into their adult lives. However, there still might be a fear that if a beneficiary knows that a large inheritance is eventually coming through the trust, they will not be as motivated to earn their own money as they otherwise would be.

The basic idea is that in a "silent trust," the terms of the trust prohibit the trustee from telling the beneficiaries about the trust or the assets in the trust. You should know that these trusts are legally controversial and are not allowed in all states.

Some states mandate that the trust beneficiaries must be told about the trust upon reaching a certain age. Delaware, however, is one state that does allow silent trusts in almost all circumstances.

If you are interested in such a trust, then contact an experienced estate planning attorney to explore your options.

10/20/2015

The federal estate tax might grab headlines, but many states also have estate taxes that people need to be aware of when estate planning. The state estate taxes often have lower exemptions, so avoiding them is desirable if possible.

Some people think they do not need to worry about estate planning very much these day. Why? Because they do not have enough assets for their estates to be subject to the federal estate tax.

That is a mistake, because there are many other reasons to have an estate plan besides the estate tax. It is also a mistake because many states have estate taxes of their own that require careful planning to navigate. With proper planning, these state estate taxes can almost always be avoided.

Move – Not every state has an estate tax, so you can move to a state without one. However, you need to be careful about appearing to have merely changed your address to avoid the estate tax. You need to make the move complete, and it is best to cut all ties with your former state.

Bypass Trusts – These are trusts created at the time of death of one spouse. The trust is usually funded with assets up to the state's estate tax limit. The rest of the estate goes to the surviving spouse. When that spouse passes away, the estate tax bill will be less. These are complex instruments and you will need an estate planning attorney to assist you.

Gifting – If you give assets away now, they will not be part of your estate and subject to the estate tax. However, make sure that you only do this after speaking to an attorney and accountant so that you do not face unnecessary tax problems.

Proper estate tax planning, whether at the federal or the state level, requires qualified estate planning assistance. This cannot be overemphasized.

10/19/2015

While many people would prefer to wait until after death to give an inheritance to their heirs, others might prefer to give while they are still alive to see the benefits of their gifts. There are ways to give money now and avoid any tax consequences.

Traditionally, wealth is transferred from one generation to the next through inheritances. However, if an elder family member has more money than he or she needs and younger family members are in need, then it is often preferable to transfer the wealth while the elder person is still alive. In fact, that affords the older generation an opportunity to witness the impact of their generosity.

Cash – A single person can give an individual $14,000 a year without tax consequences for the person receiving the gift. A married couple can give $28,000. This amount can be given to as many people as desired so long as no one individual is given more than the limit by the person giving the gift. Moreover, the giver must be sure not to have given more than his or her lifetime limit on "taxable" gifts (i.e., gifts made in excess of the annual gift exemption). That number is currently $5.43 million for a single person and $10.86 million for a married couple.

Student Loans – When you pay off a loved one's student loan debt, that does not count against the $14,000 annual limit on gifting. Caveat: This only works if the money is given directly to the educational institution.

College Savings – Money invested in a 529 college savings plan accumulates tax free and can be withdrawn tax free for qualified expenses.

These are just a few of the ways to make tax savvy gifts. Your estate planning attorney can help you with other techniques to benefit your family and favorite charities.